March 11, 2011 12:00 A.M.
Obama’s Social Security Hoax
The president will demagogue Social Security as his ticket to reelection.

Everyone knows that the U.S. budget is being devoured by entitlements. Everyone also knows that of the Big Three — Medicare, Medicaid, and Social Security — Social Security is the most solvable.

Back-of-an-envelope solvable: Raise the retirement age, tweak the indexing formula (from wage inflation to price inflation), and means-test so that Warren Buffett’s check gets redirected to a senior in need.

The relative ease of the fix is what makes the Obama administration’s Social Security strategy so shocking. The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget (OMB) director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.

This claim is a breathtaking fraud.

The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction.

<span style='font-size: 14pt'><span style="color: #990000">If you don’t believe me, listen to the OMB’s own explanation (in the Clinton administration budget for fiscal year 2000 under then-director Jack Lew, the very same). The OMB explained that these trust-fund “balances” are nothing more than a “bookkeeping” device. “They do not consist of real economic assets that can be drawn down in the future to fund benefits.”

In other words, the Social Security trust fund contains — nothing.</span></span>

Here’s why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it’s kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury — and is spent. On roads, bridges, national defense, public television, whatever — spent, gone.

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called “special issue” bonds.

Special they are: They are worthless. As the OMB explained, they are nothing more than “claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” That’s what it means to have a so-called trust fund with no “real economic assets.” When you retire, the “trust fund” will have to go to the Treasury for the money for your Social Security check.

<span style="color: #990000"><span style='font-size: 17pt'>Bottom line? The OMB again: “The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government’s ability to pay benefits.” No impact: The lockbox, the balances, the little pieces of paper, amount to nothing.
</span></span>
So when Jack Lew tells you that there are trillions in this lockbox that keep the system solvent until 2037, he is perpetrating a fiction certified as such by his own OMB. What happens when you retire? Your Social Security will come out of the taxes and borrowing of that fiscal year.

Why is this a problem? Because as of 2010, the pay-as-you-go Social Security system is in the red. For decades it had been in the black, taking in more in FICA taxes than it sent out in Social Security benefits. The surplus, scooped up by the Treasury, reduced the federal debt by tens of billions. But demography is destiny. The ratio of workers to retirees is shrinking year by year. Instead of Social Security producing annual surpluses that reduce the federal deficit, it is now producing shortfalls that increase the federal deficit — $37 billion in 2010. It will only get worse as the baby boomers retire.

That’s what makes this administration’s claim that Social Security is solvent so cynical. The Republicans have said that their April budget will contain real entitlement reform. President Obama is preparing the ground to demagogue Social Security right through the 2012 elections. The ad writes itself: Those heartless Republicans don’t just want to throw granny in the snow, they want to throw granny in the snow to solve a problem that doesn’t even exist! Vote Obama.

On Tuesday, Democratic senator Joe Manchin of West Virginia denounced Obama for lack of leadership on the debt. It’s worse than that. Obama is showing leadership. With Lew’s preposterous claim that Social Security is solvent for 26 years, Obama is preparing to lead the charge against entitlement reform as his ticket to reelection.

Krauthammer writes well enough, but appears over his head on economics as he repeats some obvious canards. Either that or he's willfully stated things he knows are not true (or if true, irrelevant).

His 'worthless IOUs' have exactly the same backing as all US Treasury bonds, where the same critique he finds so alarming applies. Meaning, when they sold those regular Treasuries, they also kept nothing around to pay them back, and instead spent the money. Krauthammer finds that shocking in the case of the bonds in the SS fund. But in his opinion this is a problem ONLY for the part of the US debt held as bonds by the SS fund? Why wouldn't it be a problem for every part of the US debt, since no part of any of it has any money to repay the loans when they come due? And how did the US snooker the world into thinking US Treasury bonds are the world's safest investment where flight to quality always goes when there's a monetary crisis, when there is no money backing them up?

The simple answer is that the world is not confused or snookered, nor does it think that any T-bonds have any reserve money backing them up. They rely on what has always backed up US federal debt-- the full faith and credit of the US, backed up by the lawful ability of taxation. That's what backs up regular issue T-bonds just as it does the special issue bonds held in the SS fund. No difference in backing at all.

K makes several other false or misleading statements, that form the false argument everyone erroneously makes.

Yes, there are fewer workers per SS recipient now than there were originally, but this is no surprise to the SS actuaries who knew this would happen decades ago. They accounted for this decline in the relative numbers of payers to recipients by vastly raising the SS payroll tax rate (by about 50%) and the ceiling of earned income to which that tax applies (by at least 500%), in the Reagan/Greenspan Commission 'fix' in the mid-'80s. This was actuarially enough to make up for both the relative decline in worker/beneficiary ratio, AND to pay for the baby boom retirement (which are almost the same issue).

The current negative cash flow in the SS system is not from this alleged demographic timebomb having hit already, but from the high unemployment rate that has trimmed its tax income proportionally by the number of persons not working, just as occurred during Reagan's steep recession with its peak 10.8% UE rate.

LWW

03-12-2011, 12:48 PM

It is amazing that seemingly educated people can't wrap their heads around this.

ugotda7

03-12-2011, 01:23 PM

Maybe the administration should ask Bernie Madoff for assistance?

Sev

03-12-2011, 04:12 PM

Who do you think has the US cash stash?

Soflasnapper

03-12-2011, 05:08 PM

Something like 90%+ of all US Ds are held outside the country.

Sev

03-12-2011, 05:25 PM

Ergo. We have no cash.

ugotda7

03-12-2011, 05:26 PM

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Sev</div><div class="ubbcode-body">Who do you think has the US cash stash? </div></div>

Gore in his lock box?

LWW

03-13-2011, 05:03 AM

Yet the left believes that they can reach into the empty box and pull out actual wealth.

Actually its no surprise to me that you and the brain dead peanut gallery don't get it.

In Soflasnapper,s post he said what he thinks, why he thinks it and gave an example to back up his argument.

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body"> </div></div>You come back as usual with a pathetic one liner. ie you do not or can not refute anything he said.

Let me see. 14.5 Trillion in debt and rising.
Revenues and GDP continuing to fall.
Fuel prices rising and correspondingly caused all goods to rise in price.
Household income is being diverted to energy consumption rather than in rest of the market.
Another record year for foreclosures on the horizon.
The real unemployment rate between 17 and 19 percent.
Stagnation is on the horizon.
64% of the population not participating in the growth of the economy.
The Federal government still growing at an alarming rate.
20,000 baby boomers retiring every week.
The states are 2.3 trillion dollars under water with their pension funds.
Every state except 1 is running a deficit.
Our energy policy is dead in the water.
The congress has yet to pass a budget and spending appropriations.
US debt is starting change hands.
The housing market is still in decline.
Public sector layoffs are increasing.
Medicare, Medicaid and Social security expenses are spiraling out of control.
People are now staying on unemployment for up 2 years.

The silver lining. Guns and ammunition sales are on the rise.

Yah we are not even close to being broke. And I have got a beautiful bridge I can sell you cheap.

You know, the way most people get paid-- not in cash, but by an instrument (check, draft, electronic funds transfer, etc.) that puts a number into an account owned by you from an account from them, only SOME of which may be turned into cash.

This is why there are different monetary aggregate numbers, M-1 through at least M-3, all of which are the 'money' supply, even though cash and currency are what people think of.

Let me see. 14.5 Trillion in debt and rising.
Revenues and GDP continuing to fall.
Fuel prices rising and correspondingly caused all goods to rise in price.
Household income is being diverted to energy consumption rather than in rest of the market.
Another record year for foreclosures on the horizon.
The real unemployment rate between 17 and 19 percent.
Stagnation is on the horizon.
64% of the population not participating in the growth of the economy.
The Federal government still growing at an alarming rate.
20,000 baby boomers retiring every week.
The states are 2.3 trillion dollars under water with their pension funds.
Every state except 1 is running a deficit.
Our energy policy is dead in the water.
The congress has yet to pass a budget and spending appropriations.
US debt is starting change hands.
The housing market is still in decline.
Public sector layoffs are increasing.
Medicare, Medicaid and Social security expenses are spiraling out of control.
People are now staying on unemployment for up 2 years.

The silver lining. Guns and ammunition sales are on the rise.

Yah we are not even close to being broke. And I have got a beautiful bridge I can sell you cheap.
</div></div>

There is about $50 trillion in private wealth in this country, even now with the loss of maybe $15 trillion in wealth from the bank blow up and the real estate debacle.

Of course, besides the national debt, personal debt is about the same size, so double up the $14.5 trillion to $29 trillion in total debt.

If YOU OR I owed $29,000, but had assets of $50,000, would you describe us as 'broke'? (And remember, the $50 trillion figure I gave is total personal wealth, NOT using any figure for the government's wealth, and the government owns what, at least 65% of all the land in the country, all its mineral wealth content, along with a vast collection of buildings, hardware and machinery, the interstate highway system, etc.)

Actually its no surprise to me that you and the brain dead peanut gallery don't get it.

In Soflasnapper,s post he said what he thinks, why he thinks it and gave an example to back up his argument.

You come back as usual with a pathetic one liner. ie you do not or can not refute anything he said.

The USA is NOT broke.

Don't panic.

Q </div></div>

Actually it's no surprise the lengths some will go to deny reality due their ideological bent and make themselves look about as intelligent as a box of rocks.

How about this example - the deficit last month.

Let me guess - you're a cowboy poet?

JohnnyD

03-13-2011, 12:24 PM

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: LWW</div><div class="ubbcode-body">Yet the left believes that they can reach into the empty box and pull out actual wealth. </div></div>
They lack comprehension on simple things one cannot expect them to understand this.

Actually it's no surprise the lengths some will go to deny reality due their ideological bent and make themselves look about as intelligent as a box of rocks.
</div></div>

I do not deny that there is no 'lockbox' containing actual money to repay the SS fund from monies borrowed from it.

I admit that, but point out that all US debt instruments are equally lacking in such cash backing.

What that means is that all US debt will have to be repaid using additional tax monies raised, and/or rolled over into new debt issues. This is just as true for the non-SS-held publicly-held debt as for the SS-held debt.

Which is presented as shocking news, when it is not, and instead the exact way the US debt has been handled ever since it grew to 125% or so of gdp after WW II, if not before. We've rarely paid back any of it, with whatever tax increases there were basically reducing the size of the deficit, excepting the last years of Clinton, when $500 billion or so was paid off from the publicly held part of the debt (and even then, total US government debt still increased-- ask LWW about that one).

World capital markets are not so naive as to be surprised at this truth, however much it shocks the economically naive here at home.

Let me see. 14.5 Trillion in debt and rising.
Revenues and GDP continuing to fall.
Fuel prices rising and correspondingly caused all goods to rise in price.
Household income is being diverted to energy consumption rather than in rest of the market.
Another record year for foreclosures on the horizon.
The real unemployment rate between 17 and 19 percent.
Stagnation is on the horizon.
64% of the population not participating in the growth of the economy.
The Federal government still growing at an alarming rate.
20,000 baby boomers retiring every week.
The states are 2.3 trillion dollars under water with their pension funds.
Every state except 1 is running a deficit.
Our energy policy is dead in the water.
The congress has yet to pass a budget and spending appropriations.
US debt is starting change hands.
The housing market is still in decline.
Public sector layoffs are increasing.
Medicare, Medicaid and Social security expenses are spiraling out of control.
People are now staying on unemployment for up 2 years.

The silver lining. Guns and ammunition sales are on the rise.

Yah we are not even close to being broke. And I have got a beautiful bridge I can sell you cheap.
</div></div>

There is about $50 trillion in private wealth in this country, even now with the loss of maybe $15 trillion in wealth from the bank blow up and the real estate debacle.

Of course, besides the national debt, personal debt is about the same size, so double up the $14.5 trillion to $29 trillion in total debt.

If YOU OR I owed $29,000, but had assets of $50,000, would you describe us as 'broke'? (And remember, the $50 trillion figure I gave is total personal wealth, NOT using any figure for the government's wealth, and the government owns what, at least 65% of all the land in the country, all its mineral wealth content, along with a vast collection of buildings, hardware and machinery, the interstate highway system, etc.)

</div></div>

Your talking about personal and private assets. They are not an asset of the US government. Unless your talking about confiscation of course.
They are borrowing 40 cents on the dollar.

You also left out all the liabilities of the US government which far exceeds the everything else.
The balance sheet of the united states is not good.